Exit strategies private lenders accept — and the evidence each one needs

Every private loan is underwritten against its exit. The lender is not asking whether the business can pay interest for twenty years; it is asking how, specifically, the principal comes back at the end of a 6-, 12- or 18-month term. A deal with strong security and a vague exit is a weaker deal than one with ordinary security and a documented one. This article sets out the exits lenders accept, the evidence each needs, what weakens them and what happens when one slips.

Why the exit is the primary variable

A private facility is short by design. The lender's capital is committed for the term and priced for it. If the loan cannot be repaid at maturity the options are an extension at the lender's discretion, a refinance, or enforcement — all of which cost the borrower more than getting the exit right at the start. So the credit assessment works backwards from maturity: what will have happened by then that produces the money, and how sure can we be.

The five exits lenders recognise

• —Sale of the security property. Evidence: an exchanged contract is ideal; otherwise a marketing plan, agent appraisal and comparable sales, with a term long enough to run a proper campaign.
• —Refinance to a bank or term lender. Evidence: an indicative approval or pre-approval, a broker's assessment of serviceability, and a credible reason the bank will say yes later when it will not say yes now (clean ATO, trading history, completed build).
• —Project completion and settlements. For construction and residual stock: presale contracts, a sell-down schedule, or a refinance to an investment facility if the stock is held.
• —A known receivable. A contract payment, insurance proceeds, a litigation settlement, a capital raise with signed commitments. Evidence is the document itself and the payment date.
• —Sale of another asset. Property elsewhere in the group, or a business division. Evidence as for a sale, plus confirmation the proceeds will flow to the borrowing entity.

What weakens an exit

• —“We'll refinance later” with no lender identified and no reason the answer changes.
• —A sale exit on a property in a thin market, with no comparable sales and a term too short to market it.
• —Reliance on a single buyer or a single contract without a fallback.
• —An exit that depends on the same event the loan is bridging — circularity the lender will see immediately.
• —Timing with no buffer. A three-month exit should sit inside a six-month term.

Matching term to exit

The term is a function of the exit, not the other way round. A refinance that realistically needs four months of clean trading gets a nine- or twelve-month term; a sale gets a term that covers marketing, exchange and a normal settlement period plus a margin. Interest is usually capitalised so the business is not servicing the loan while it waits for the exit, which is also why the LVR is calculated on the gross facility including that interest. Our first mortgage and second mortgage pages set out typical terms.

When the exit slips

It happens. The bank takes longer, the buyer falls over, the build runs late. What matters is when the lender hears about it. Six to eight weeks out, the options are wide: a negotiated extension, a new facility with a reset term, or a different exit. The week of maturity, they are narrow and expensive. Our page on refinancing an expiring private loan covers the choices in order of cost.

A borrower's checklist

• —Name the exit in one sentence. If you cannot, the lender cannot either.
• —Gather the evidence for it before enquiry — the contract, the pre-approval, the appraisal.
• —Identify a fallback. Lenders like a plan B even if they never need it.
• —Ask for a term with a buffer, not the shortest one that looks cheapest.
• —Diarise a check-in two months before maturity.

With a documented exit, the rest of a private loan assessment is largely mechanical. Start an enquiry and tell us the exit first.